"Indian market is likely to be rangebound given that the valuations have corrected to fair range compared to historical long term trend," Harsha Upadhyaya, President & Chief Investment Officer - Equity at Kotak Mahindra Asset Management Company told Moneycontrol in an interview.
However, he feels Indian valuations are still at a significant premium to other competing economies. Any visibility on earnings improvement due to expected commodity cost inflation will provide positive momentum to the market, he believes.
Upadhyaya, who has over two decades of experience across equity research and fund management, advised investors should watch out for opportunities in sectors such as banking, auto, cement and industrials in case of further market correction. Edited excerpts:
Has the US Fed's terminal rate increased to 6 percent now, against 5 percent earlier? Do you think the aggressive policy tightening by Fed is unlikely going ahead given the recent mixed jobs data?
It seems it is going to be higher rates for longer as of now. However, the terminal rate would be dependent on the economic data that comes through over the next few quarters.
The job of Federal Reserve isn't an easy one where they have to calibrate the impact of higher rates, which have sharply moved from near zero levels to current levels, on the economy while trying to reign in on inflation.
The collapse of SVB Bank is really a big worry for the US banking space? Do you expect 2008 like situation now?
The impact of SVB episode is largely contained in our view given the intervention of US Fed and change in management and control of the bank. Moreover, it was one of the smaller banks in the US with niche operations. Last couple of days have also shown that the possible contagion risk is well contained.
Do you think the US economy is near a recession now?
Even there while the recent sharp interest rate hikes are likely to have an adverse impact on the economy, we expect slower growth in 2023 as compared to 2022 but no recession. As rates remain at higher levels, there is definitely to be an adverse impact on economic growth with a lag.
Will the market remain rangebound till the general elections 2024? Also do you see any possibility of another 10 percent correction from current levels?
Indian market lacks any positive triggers in the immediate term. It is likely to be rangebound given that the valuations have corrected to fair range compared to historical long term trend.
However, Indian valuations are still at a significant premium to other competing economies. Any visibility on earnings improvement due to expected commodity cost inflation will provide positive momentum to the market. However, this is expected only gradually over the next few quarters.
What sectors should investors bet on if the market corrects further by 10 percent from here on?
In case of a correction, investors should focus on sectors/ themes which are likely to have reasonable steadiness on earnings front. We expect domestic focussed businesses (other than consumption oriented) to fare better over the medium term. Investors should watch out for opportunities in sectors such as Banking, Auto, Cement and Industrials in case of correction.
What are key factors that we need to closely watch out in the next financial year?
The focus should be on factors such as – inflation trend in domestic as well as global economy and consequent impact on monetary policies, earnings trend, monsoon and valuations.
What is your view on inflation numbers from India and US?
The inflation prints coming in from most parts of the globe are still above the comfort levels of respective central banks. Given this, we are unlikely to see any reversal in monetary policies across the world yet. However, we do expect some moderation in inflation numbers over the next couple of quarters.
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